Causes And Effects Of Private Capital Movements In Germany, 1955‐69

This paper analyses the German private capital movements in the period 1955‐69. For this period it cannot be said that the capital movements played an equilibrating role in the balance‐of‐payments: In eight of the fifteen years a current surplus was coupled with a capital inflow; in one year (1969) the capital outflow was twice as high as the current surplus. To these disequilibrating capital movements the following causes have contributed: (i) frequent conflicts between internal and external equilibrium in the conduct of monetary policy; (ii) the political impossibility of an adequate policy mix; (iii) in conflict situations priority was given to internal considerations; (iv) speculative movements anticipating a revaluation. Germany frequently succeeded in influencing domestic credit conditions in the desired direction despite of countervailing capital flows. In 1960 and 1969, when a domestic boom was coupled with a substantial current surplus, partial controls of capital movements were not successful and Germany had to revalue. A regression analysis for the period 1959‐68 supports the hypothesis that the private capital balance is a negative function of the current balance and positively correlated with the interest differential between Germany and the Euro‐dollar market.